Greek cuts go 'further' than Irish response

GREECE’S FINANCE minister has said his country was going further than Ireland to reduce public sector pay, as its government struggles to convince the international markets it can tackle its mounting debt crisis without external support.

Speaking to reporters at the Davos economic summit, George Papaconstantinou said he had been advised continually by European finance ministers at Ecofin meetings to follow Ireland’s example to reduce its fiscal deficit.

Responding to a query from The Irish Times, Mr Papaconstantinou said the Greek approach was different to Ireland's approach. "I would actually say that we are going a little bit further," he said. Greece was cutting tens of thousands of jobs to cut the deficit from 12.7 per cent of GDP, the highest in the euro zone, to 8.7 per cent initially and below 3 per cent by 2012.

“The main reason why Ireland was lauded was for the decision to reduce nominal wages in the public sector as a real test of resolve. We have a very different system than Ireland,” he said. “To attack the same kind of problems – a wage bill that is growing very, very fast – we are addressing it in a slightly different way because the risks are different.”

Ireland’s deficit stands at about 11.5 per cent of GDP following last month’s budget. The euro hit a six-month low against the dollar in Asia yesterday, but rallied after reports that the EU would step in with emergency support to stop Greece defaulting on its debts.

Greek prime minister George Papandreou said the government was prepared to “draw blood” with internal reforms to restore the country’s credibility as its borrowing costs spiral.

Mr Papandreou refused to discuss the option of an EU bailout as an alternative to its internal plan. “Discussing theoretical possibilities could end up becoming a self-fulfilling prophecy,” he said.

Mr Papaconstantinou said: “Any discussion of a plan B is not in our vocabulary. We are not going to be drawn into this.”

Mr Papandreou said it was widely known that speculating hedge funds were betting against Greek government debt. “That is a reality we must deal with,” he said.

Greece’s problems were common at a difficult time for the global economy, he said. “Today we are talking about Greece, but tomorrow it could happen to someone else.” Greece had different, more structural problems to other countries, he said.

“You have a different scenario in Ireland,” he told reporters. “Ireland had a very big expansion into the banking system and that has created certain problems.”

Mr Papandreou said the Greek government was determined to stamp out corruption as part of its plan to “put its house in order”.

“Let us clean the slate and put in rules and regulations so we move away from this negative legacy. It is not part of our DNA. It may draw blood from us all, but it will create a more credible political system,” he said.

French finance minister Christine Lagarde expressed confidence in Greece's plan, while British chancellor Alistair Darling said it was "in Europe's interest that Greece sorts out these problems – if the ECB can help, then so be it". "The Greek government is pretty focused, as indeed the Irish Government has been pretty focused, on what they need to do," he said in a response to a question from The Irish Times.